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A food for thought for former friends and acquaintances (who are now foreign nationals) who are planning to buy a property in the Philippines:

1. The Listing Broker is not your “friend” – His loyalty is with the owner of the house he is selling and not to you!

In fact, he has a contract with the owner to sell the property (called a listing agreement signed by both parties) at the highest price possible because often his professional fee is a % of the gross sales, and worst (particularly for unlicensed “brokers” kuno) he might just simply jack up the prices – and in some hilarious situation ends up getting a higher amount than the owner himself!

2. If you spend millions of pesos to buy a property – common sense tells you to have it properly appraised by a professional real estate appraiser to estimate its market value.

Do not rely on the broker himself (see No. 1 above), the neighborhood gossip, a relative with no real estate experience regardless of how good and pure his intention is, a former office mate you have not seen in the last decade.

Spending say P 20,000 for an appraisal of a P 5,000,000 3 bedroom residential property means investing 0.4% for your peace of mind! Its hard to lie down in your new bedroom looking at the ceiling for the next 10 years knowing that at your age – you were still duped by a glib talker!

3. Common sense will also tell you to have the property be thoroughly “property inspected” for termites, obsolete designs, external obsolescence (present and future – a garbage dump maybe proposed near your backyard by the city hall, or somebody died of a horribly infectious decease in the masters bedroom, God forbid!).

Hire somebody to climb the attic, ceiling, and crawl underneath, and look under the kitchen sink – and not just to leisurely take a walk around the property!

4. A background investigation title or ownership due diligence is also necessary. The property might be in the middle of nasty property dispute – and the back page is littered with a lot of lis pendens, mortgages, etc. The seller might not be the true owner, or his title might be spurious, a duplication, a fake, with a cloud, etc.

The house might be inadvertently standing on another’s property! Have it also surveyed by a Geodetic Engineer to be sure – especially for rural areas whose physical boundaries might be just some rock or trees planted by an ancestor long ago!

5. If you are a former Filipino citizen who is already a citizen of another country, then you have lost the rights of a Filipino citizen, and you are barred from owning real estate in the Philippines, except under certain circumstances like inheritance, previously owned properties, and under the special conditions of BP 185 (Residential up to 1000 Sq. M. Urban, and up to 1 hectare Rural), and RA 8179 ( up to 5000 rural, and up to 3 hac Rural – for business) – just go to the internet an Google it up!

By the way, a foreigner can also buy condos provided the ownership of foreign nationals in the condo corporation does not exceed 40%.

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There are a lot of things to consider when buying properties in the Philippines like the taxes to be paid, and the deadline for payment of those taxes (for Capital Gains tax, 60 days from notarization, for Documentary Stamps, the 5th day of the next month).

Also don’t forget to arrange who will process the registration of your new property – there are brokerage firms who does this for a fee.

But never deal with an unlicensed or colorum broker or agent. It is a violation of RA 9646 or the RESA law, and punishable with a fine of P 100,000 or 2 years imprisonment, or both; or even double that for illegal practitioners.

If as a buyer, and your dollar is so burning a hole in your pocket such that you are super anxious to spend it now regardless of the RESA law – just remember that knowing that your broker or agent is an illegal colorum yet you deal with him with this foreknowledge, makes you a complicit to the crime itself – and may bar you from complaining to the authorities in the future if the deal turns south!

What a bad idea to start your new life in the Philippines by violating a law!

if you don’t know this – then you do now. We are now in the information age and its very easy to unmask a fake or illegal broker or sales agent.

Just visit the PRC website to check and unmask the true identity of your broker or sales agent. Just google this and fill in the name of your broker: http://www.prc.gov.ph/services/?id=16

Usually applied in mass appraisals, it is an application of the 4-3-2-1 rule. Simply stated, it means that the market value of a real estate is greatest as it is nearer the road, and reduces in market value as it is farther away from it.

Mass appraisal is “the process of valuing a group of properties as of a given date, using standard methods, employing common data, and allowing for statistical testing” (from Standard of Mass Appraisal of Real Property International Association of Assessing Officers). This is necessary for uniformity and consistency in ad valorem (Latin for “according to value” which means that we are taxed according to the value of our real and personal property) appraisals.

Wait a minute!

Are we also taxed for our personal property? Actually, yes, but it depends upon the laws your country!

Mass appraisals are usually used by assessors in computing our real property taxes. The trend nowadays is to computerize everything such as in the Computer Assisted Mass Appraisal (CAMA) and in the application of the multiple regression analysis to mass appraisal (but this is another topic for another blog!).

But What OfThe 4-3-2-1 Rule?

This is a rule of thumb akin to the depth adjustments made to determine the value of properties bordering on roads and highways. This rule states that the front quarter of a parcel is worth 40% of the whole value, the second quarter 30%, the third quarter 20%, and the rear quarter 10% (see Figure A).

By way of example, suppose that you have four thousand square meters property bordering a street where the market value is established at P 10,000 per square meter.

In real estate appraisal, the standard depth of a lot in the area is established first (for example in Iligan City it is 20 meters). Then the lot is stripped by the standard depth as shown in Figure B (the percentages is usually fixed by a city or municipal ordinance):

In the Philippines, the Department of Finance released a “Manual On Real Property Appraisal and Assessment Operations” on January 2006, and has the following rules on appraisal using the Stripping Method above:

1. It is not to be used for commercial and industrial properties

2. It shall not apply to corner lots

3. For lands bounded by 2 streets that are not considered corner lots, the higher street value shall be applied, provided that the value per square meter for the last strip shall not be lower than the value per square meter of lots in the other street.

4. Subdivision lots are not subject to stripping

Real estate appraisal by Assessors is something that we usually put in the back burner, until the beginning of the year when we are assessed and required to pay our real estate taxes.

In the Philippines, a lot of cities and municipalities are now re-computing the real property tax in what is called the “general revision” based on Section 219 of RA 7160.

This will be applied in 2014!

Then at that time perhaps, we shall be more interested in the stripping (our real estate)!

PS: Next time we shall discuss about the 65/35 rule in valuing triangular lots.

The AIPO national directorate – especially the first batch in the election of 2012 – will in effect control the fate of the real estate industry for better or for worse – in the decades to come.

The AIPO will have the golden opportunity to change the image of the real estate industry – professionalize it, keep it up in this internet age, unite it into a single potent unit from a disaggregation of various splinter groups.

There is however also the so-called “dark side of the force”. On the flip side, this power that could be undeniably used for good – can be also used to run down or out of business perceive enemies, and use the power for personal gains and glory.This is both good and bad – as it is always in real life.

How ? This they can do through RA 9646.

Consider this facts:

The AIPO will have the power to determine the next batches of PRB RES. How? Under Section 4 of the RA 9646 IRR, the AIPO is the only one who will give a list of five candidates for every vacant PRB RES position – from which the President of the Philippines shall appoint a nominee to that vacancy (from out of three nominees by the PRC – also taken from the same list).

The nominees must come from the AIPO but is not an officer at the time of his appointment (Section 6.d of the IRR). Those wanting to be nominated to the PRB RES must therefore join the AIPO but not aim for any officership position at all – in order to be qualified.

The PRB RES controls the conduct and direction of the real estate industry for years to come (See Section 5 of the IRR). For example, the board conducts licensure examination; issues and revokes/reinstates licenses of practitioners; adopts the national code of ethics issued by the AIPO; screens, issue and monitor the service providers for the CPE seminars, and a many other powers.

The AIPO then is very crucial. This power to indirectly influence the PRB RES, in the hands of an unscrupulous person or clique can be a boon or a bane to many. However, done properly, with a pure heart, and unselfish intention – this power can be used for the good of all. As in the Spiderman movie it is said, “ From great power comes great responsibilities”, but some would say also “weather – weather lang yan!” – and that is the fear of many.

This is now the moment of truth for many of us. We must select leaders who will work unselfishly for the industry, with no personal motive of self aggrandizement, and no axe to grind their enemies to the ground. Does this leader exist at all?

There are always two sides to a coin – black and white, night and day. Discerning RESPs however must be able to “see” these two sides, step up to the plate, and make the right decision when push comes to shove. They can vote with their hearts and discerning mind – and not as a mob, or a sheep to slaughter. In short, they must exercise due diligence, and vote according to their conscience on what would be best for everyone.

But how can we do this? We have no power to see the future, nor the ability to see the hearts and mind of men(and women). However, we can see the past, and this past can give us a clue into the capability and true character of a person.

Let us then exercise due diligence and select leaders with a golden heart – the one who will unify us, guide us to greater possibilities in our profession, guided by a refined sense of spirituality, of justice and impartiality. One who will truly galvanize us into action for the good of all. That is the least we can do.

In my previous Blog, I estimated that there are 15,437 Real Estate Service Practitioners (RESP) in the Philippines as of February 13, 2012. (To read this blog, please go to this URL). This of course, does not take into consideration the hundreds, if not thousands, of Salespersons who registered with the PRC to avail of the so called “Grandfather Clause” of the RA 9646, or the RESA Law.

The estimate enumerates the Professional Regulation Commission (PRC) and Professional Regulatory Board of Real Estate Service (PRB RES) approved RESPs and also assumes that all of them has already applied with the PRC for licensing. In reality, of course, some still may not have applied for a license at the PRC for whatever personal reasons.

Now once again, the “tribe” of RESPs has increased – with the addition of new Appraisers, Assessors and Brokers.

First in the line, is the newly minted Resolution No. 05 Series of 2012 dated Feb 29, 2012 with the new Appraisers totaling 408 in all. Second, just very recently on March 8, 2012, PRC and PRB RES again approved the new crop of RESPs as follows: Resolution No. 06 Series of 2012 for 181 Real Estate Brokers, and then followed by Resolution No. 07 Series of 2012 for 12 new Appraisers/ Assessors.

The total number of RESP in the Philippines now (as of March 23, 2012) – and at any moment the result of the exam for Real Estate Brokers last week will be released by the way – is 16,038 more or less, (or in terms of percentages, the Consultants is still less than 1% at 0.43%, the REAs at 19 %, and the REBs, which naturally forms the overwhelming majority is at 80.57%).

Side comments:

Some Real Estate Brokers likes to christen their Salespersons on their firms as ” Real Property Consultants” or something to that effect. I humbly suggest that it will be confusing to the public, and is a misrepresentation of our RE Consultants, as well as it would cheapen the stature of the Real Estate Consultants in our industry. The Real Estate Consultant in the Philippines by the way – in order to qualify for the 2 days examination (including a revalida of a previously submitted Feasibilty Study) – must have notched at least a solid 10 years experience as a broker, or 5 years experience as an Appraiser.

Obviously, this needs a vast knowledge and skill in all fields of realty service, real estate finance, law, mathematics, and economics – to say the least (by the way, a revalida is an oral, face to face, defense of your feasibility study in front of the Board, or PRB RES – which scrutinizes your market, technical, financial and other aspects of your feasibility study).

(P.S.: Our group the Center for Real Estate Education Knowledge and Skills, Inc. based in Cagayan De Oro City is planning to offer a review for REC this year. We are in the process of organizing the review and getting the necessary permits from the PRC and PRB RES. The CREEKS, Inc. boasts an array of experienced brokers, real estate appraisers, real estate consultants, CPA, lawyers, engineers, environmental planners – which we can even augment more as may be necessary – thus ensuring a rich and truly challenging review for the aspirants.

We also have our board exam top notchers within the teaching staff with us – for REC No. 1,2 and 3 in the Board Exam ; for REA within the top ten; and for REBs No. 1.

For those interested to review with us, please contact us this early for your reservation – as we will be definitely limiting the slot of reviewees to a manageable number.)

The service of the RECs in the Philippines is very different from that of a Broker or Salesperson, or even Appraiser / Valuer as it involves consultancy services in feasibility studies, HABU analysis, distressed property consulting, market analysis, development planning, and other such things – which is far from selling properties.

To name our Salespersons as “Real Property Consultants” even just as a marketing ploy is in my opinion not advisable.

Exactly how many real estate brokers, appraisers, and consultants are there in the Philippines right now (Feruary 13, 2012)?

We need to know if not just for curiosity, but also to know the exact point when the membership of the AIPO reached the so-called majority.

So to find the truth, we have gone over the published list of licensed RESPs (Real Estate Service Professionals) since 2009, and started to count (we have three board examination under the auspices of the PRC last year in 2011 for brokers, appraisers, and consultants – and those are also included here):

Board Resolution / Date of Exam

Broker

Appraiser

Consultant

Board Res. No. 03 and 4 S. 2010

531

33

10

Board Res. No. 5 S.2010

488

25

1

Board Res. No. 1 S.2011

762

39

4

Board Res. No. 2 S.2011

906

145

2

Board Res. No. 3 S.2011

605

116

5

Board Exam (3/27/11) – Broker

3,185

n/a

n/a

Board Res. No. 5 S.2011

740

195

2

Board Res. No. 8 S.2011

920

283

5

Board Res. No. 9 S.2011

777

236

3

Board Res. No. 11 S.2011

493

479

2

Board Exam (07/31/11)-Appraiser

n/a

541

n/a

Board Res. No. 15 S.2011

606

548

2

Board Res. No. 17 S.2011

n/a

n/a

4

Board Res. No. 18 S.2011

1,804

n/a

n/a

Board Res. No. 20 S.2011

n/a

88

n/a

Board Res. No. 21 S.2011

430

n/a

1

Board Exam (11/27-28/11)-Consultant

n/a

n/a

26

Board Res. No. 24 S.2011

n/a

8

n/a

Board Res. No. 25 S.2011

183

n/a

1

Board Res. No. 02 S.2012

n/a

4

n/a

Board Res. No. 03 S.2012

198

n/a

1

Total

12,628

2,740

69

Percent of Total, %

81.8 %

17.7 %

0.5 %

Grand Total (as of February 2, 2012 is: 15,437

Some minor points.

All those issued a license under a Board Resolution above – were those licensed under the so-called “grandfather clause” of RA 9646 specifically under Section 20. This privilege (for those previously licensed under the old DTI Memorandum No. 39) expired last July 31, 2011 and new aspirants must now take the board examination if they are qualified.

The total number of RESPs is 15,437, however the actual licensees maybe lower as some has not yet applied for a license, or their license is not release due to some reasons.

The bulk of the RESPs are as expected the real estate brokers at 81.8 %, followed by the appraisers at only 17.7 %. The consultants form a minuscule 0.5 % of the total. However, many of them (just like yours truly) are also brokers, and appraisers – as those are the requirements for taking the board exam for consultants under RA 9646.

The assessors were counted in the appraisers’ column as their license are also as real estate appraisers.

In the Philippines these days, the FMV or Fair Market Value is fast becoming a catch phrase together with the SALN – that ubiquitous document supposed to be filled up by government officials on a yearly basis.

Why, in fact just yesterday, my barber gives an in depth colloquy on the meaning of the FMV in relation to the CJ Corona affair – while cutting my hair! And alas, he spoke with an authority of one who is regularly glued to the TV channels every 2 o’clock in the afternoon watching the impeachment trial!

But really, what is a Fair Market Value? Is it the acquisition cost? Is it the zonal value of the BIR? Is it the schedule of market values given by the assessor’s office for the computation of the yearly real property tax? Or can it just be any value estimated by the owner of the property based on the so-called comparables, and what not?

To understand the concept of an FMV, one has to refer to the so-called International Valuation Standards or IVS which was adopted by the Philippines into the so-called Philippine Valuation Standards (PVS) recently. This is sort of a “Bible” for appraisers, or valuers, if you may – as it is styled in the PVS.

You see, the IVS – or as I said earlier, the PVS in the Philippines – was crafted by the London based International Valuation Standards Council (IVSC) to set the global standard for valuation. This was adopted by many countries in the world, especially in Europe. And since the Philippines do not live in a vacuum so to speak, we have also adopted these standards as our basis in making real property valuations in the Philippines.

FMV, IVS, PVS, IVSC… whew!

Before we drown on a deluge of foreign sounding acronyms, what is a Fair Market Value, again?

What’s in a name anyway?

As it turns out, the PVS does not recommend the use of the word Fair Market Value anymore – but just simply “Market Value”. This is because to add an adjective of “Fair” before the “Market Value” is an oxymoron of sorts!

After all, the concept of a “market” implies the ability of buyers and sellers to carry on their activities without restriction, which implies fairness already – and to further qualify the word “market” with “fair” would be a bit of an overkill, is it not?

All of this harks back to that old reliable principle in economics –the supply and demand (which we will not tackle here now by the way – as it needs an entire article of its own!) – which requires an unrestricted open market economy by definition.

Why, to be precise even the ordinarily used words such as price and cost have special meanings, totally distinct from the word value!

According to the PVS, “price is the amount that has been asked, offered, or paid for an item”, while cost is the amount of money required to create or produce a commodity, good, or service. Sort of the former is the amount you get for your house, while the latter is the amount you pay in building it.

Therefore, the price is actually the acquisition cost of a real property, right?

What’s that again?

In the Philippine Valuation Standards, the term market value has a precise meaning for us real estate appraisers. It is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

A bit too much to handle? Indeed! But let’s try to dissect this definition into easy to understand parts!

Here goes.

First of all, let me clarify that the market value refers to valuation of property in this case (of course, it could also be applied to that other class of property called personal property) – actually real property – and its value is the result of the factors of utility, scarcity, desire, and purchasing power. These four stooges, by the way, are the so-called factors that create value in any product or service.

So let’s start with the term “ …the estimated amount…”.

It simply means that the market value is an estimate of the most probable price in terms of money (usually local currency) – repeat estimate – on a specific date of valuation in line with the other definition of the market value. Important! The estimate must be consistent with the highest and best use (HABU… oops another term again, but I explained this before in another blog here! N.B. Here’s a link to that earlier blog on the HABU) of the real property in question.

What about “ … the property should exchange…”? Well, it means again, and as mentioned above – that the value is an estimated amount of a theoretical exchange of ownership – rather than a predetermined amount or actual sales price. It is the price at which the market expects a transaction that meets all other elements of the market value.

The phrase “ … on the date of valuation …” means that a market value is time specific as of a given date – and may vary across time depending on the vagaries of the market. In fact, it may increase or decrease depending on the law of supply and demand.

The other element of market value is willingness between a buyer and a seller. This is clear in the phrase, “… between a willing buyer and a willing seller …”. It also means that the there is no compulsion on the parties involved – but rather that the exchange is based on the realities of the current market expectation alone. If the buyer or seller is compelled to buy or sell due to forces which render the price not reflective of the market forces then it is not true market value in the real sense.

Another important thing to consider is that the actual situation of the actual property owner is not considered in the valuation of market value because the “willing seller” is hypothetical – and not a real person.

So what do “ … in an arm’s length transaction…”. mean? Of course, it means that that the buyer and seller has no special relationship, right? A price cannot be considered as truly market value if the sale is between a parent and a child.

Market exposure presupposed.

“After proper marketing …” means that the property is exposed in the market in an appropriate manner in sufficient time – enabling it to be exposed to the attention of an adequate number of potential buyers.

And finally, what do the phrase, “wherein the parties had each acted knowledgeably, prudently, and without compulsion.” It is presumed that both parties are reasonably informed about the nature and characteristics of the property, it’s actual and potential uses and the state of the market as of the date of valuation, and acts for self-interest with that knowledge – without being forced or unduly coerced to the transaction.

Side comments.

Truly, it is hard to encapsulate the meaning of market value in one sentence. But clearly it is an estimate of the value of a property at a given time – under conditions of a free market – with the stakeholders under no compulsion whatsoever.

In short, it is a concept of a price/value of a real property arrived at in a perfectly competitive market structure.(a paraphrase from an article of James R. MacCrate in WordPress).

Whatever that value is – it is the market value!

That’s why the valuation of a property is properly the work of a professional – the real estate appraisers. They alone are the professionals mandated by the law (RA 9646) to give estimates of market value for real property – having the skills, the know-how and the discipline of their craft to give valuations and appraisals.

Owners could estimate the market value of their property, why not? But it could be biased. It is human nature!

Even real estate brokers should in fact refrain from giving estimates of value for obvious reasons – since their commission or professional fee is actually tied up with the value of the property itself. A high property estimate means higher commission, while a low property estimate means a quick sale!

Again, its human nature!

Banks on the other hand could be also obviously biased especially if they will appraise a property – which is intended to be mortgage to the bank itself. A clear case of a judge, jury and executioner in action.

Only a real estate appraiser – who has no connection with the property being appraised, and whose professional fee is not contingent on the final valuation amount – could do a professional, uninterested, and unbiased valuation of a property.

As they say… res ipsa loquitur (the thing speaks for itself!), and so it is with real estate appraisers, or valuers.

Exactly how many real estate brokers, appraisers, and consultants are there in the Philippines right now (January 22, 2012)?

With the looming scheduled first national election for the PhilRes (the Accredited Integrated Professional Organization apparently approved by the PRC) on February 28, 2012, perhaps it is now high time to really check how many we are?

We need to know these not just for curiosity sake, but also to determine at what point does the membership of the AIPO reaches majority?

So to dig for the truth, we have gone over the published list of licensed real Estate service professional (RESP) since 2009, and here is the result ( this includes the three board examination under the auspices of the PRC last year for brokers, appraisers, and consultants) (for details refer to my previous blog):

Board Resolution / Date of Exam

Broker

Appraiser

Consultant

Board Res. No. 03 and 4 S. 2010

531

33

10

Board Res. No. 5 S.2010

488

25

1

Board Res. No. 1 S.2011

762

39

4

Board Res. No. 2 S.2011

906

145

2

Board Res. No. 3 S.2011

605

116

5

Board Exam (3/27/11) – Broker

3,185

n/a

n/a

Board Res. No. 5 S.2011

740

195

2

Board Res. No. 8 S.2011

920

283

5

Board Res. No. 9 S.2011

777

236

3

Board Res. No. 11 S.2011

493

479

2

Board Exam (07/31/11)-Appraiser

n/a

541

n/a

Board Res. No. 15 S.2011

606

548

2

Board Res. No. 17 S.2011

n/a

n/a

4

Board Res. No. 18 S.2011

1,804

n/a

n/a

Board Res. No. 20 S.2011

n/a

88

n/a

Board Res. No. 21 S.2011

430

n/a

1

Board Exam (11/27-28/11)-Consultant

n/a

n/a

26

Board Res. No. 24 S.2011

n/a

8

n/a

Board Res. No. 25 S.2011

183

n/a

1

Total

12,430

2,736

68

Percent of Total, %

81.6 %

17.9 %

0.5 %

Grand Total (as of January 22, 2012) is: 15,234

Some minor points.

All those who were issued a license under a Board Resolution above – were licensed under the so-called “grandfather clause” of RA 9646 – specifically under Section 20 – without taking the board examination. This privilege (for those previously licensed under the old DTI Memorandum No. 39) however, expired last July 31, 2011, and now all new aspirants must take the board examination – if they are qualified.

The total number of RESP is 15,234, however the actual licensees maybe lower as some has not yet applied for a license, or their license was not released for some reasons.

The bulk of the RESPs as expected are the real estate brokers at 81.9 %, followed by the appraisers at only 17.9 %.

The consultants form a minuscule 0.5 % of the total. However, most (just like yours truly) are also brokers, and appraisers at the same time – as these are the requirements for taking the board exam for consultants under RA 9646.

The assessors and government appraisers on the other hand were counted in the appraisers’ column as their license are also as real estate appraisers.

Comments on the AIPO

The “integration” should not be interpreted per se as of the professions themselves (brokers, appraisers, assessors, consultants, ) but of the myriad groups that forms each profession for so many years.

Each has different concerns, and must by necessity eventually evolved into different groups sooner or later. For example the main problem for brokers are the colorums (ie.. unlicensed brokers, and other professions moonlighting as pseudo-brokers), while this is not so much for appraisers. For consultants, their problem is the overlapping function with other professions practically also doing the same thing (ie… engineers, etc.). With a force of only 68 nationwide, it still has to find its true niche in the market place.

The AIPO has to be organized mainly to protect, enhance, and develop the profession -and to make it relevant to our society.

Whether they like it or not, the organizers of the AIPO must be fair, and selfless, and be perceived as so – for without it they can not get the cooperation of the members they sought to represent.

In short, they must be wise as Solomon, a father like Abraham, and a friend we can run to when we have problems and fears – not someone we dread to approach like Zeus in Mt. Olympus – but a true brother (or sister) in the profession – truly interested in its welfare.